What is the difference between a deduction and a tax credit for charitable giving?
Most taxpayers are familiar with tax deductions. Federal tax law encourages giving by offering deductions. Federal taxpayers who itemize can take tax deductions for the amount they contribute to eligible charities. This permits them to reduce their taxable income by what they contribute to these charities. Thus, for example, an itemizing federal taxpayer who is in the 28% bracket can reduce his taxable income by $100 and his tax bill by $28 by contributing $100. A tax credit, on the other hand, permits the taxpayer to reduce his tax bill by some fraction of what he contributes. Thus, for example, a 50% tax credit permits the taxpayer who contributes $100 to reduce his tax bill by $50.
